BIR Implements Grant of 10% discount and VAT Exemption to Solo Parents

Last Updated on February 24, 2023 by Marie Bautista

Good news, Solo Parents!

On January 18, 2023, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-2023 to set forth guidelines for establishments when offering ten percent discounts and VAT exemptions to qualified Solo Parents on their purchases as indicated in Republic Act No. 11861 or the “Solo Parents Welfare Act”.

These Regulations have been issued as guidelines for the following:

First, the tax privileges granted to establishments giving the ten percent (10%) discount on their sale of goods identified in the Act to Solo Parents; and

Second, the VAT exemption on the sale of goods identified in the Act to Solo Parents by VAT-registered taxpayers.

In A Nutshell: Solo Parent’s Privileges under Republic Act No. 11861 or The Expanded Solo Parents Welfare Act

According to RR No. 1-2023, only a solo parent with children 6 years old or younger and earning less than ₱250,000 per year is eligible for tax benefits provided under the law RA 11861.

A Solo Parent will receive 10% off and be exempt from Value-Added Tax (VAT) when she purchases certain goods like baby’s milk, food supplements, diapers, vaccines, and other medical supplements..

How can a Solo Parent Avail of the Discount?

To avail of the said discount and exemption, the Solo Parent should present his/her “Solo Parent Identification Card” (SPIC) and “Solo Parent Booklet”.

The SPIC should show that the Solo Parent is entitled to the 10% discount and VAT exemption by indicating that the Solo Parent is earning less than ₱ 250,000.00 annually, with the dorsal side of the SPIC showing the name/s, birth date/s, and relation to the Solo Parent of the qualified children and/or dependents with the age of six (6) years or under.

The grant of the discount is only for the purchase of goods identified in the Act for THE EXCLUSIVE USE AND ENJOYMENT OR AVAILMENT OF THE SOLO PARENT’S CHILD OR CHILDREN WITH THE AGE OF SIX (6) YEARS OR UNDER. 

Let us delve into the Clarifications outlined in the Revenue Regulations to gain better insight:

Definitions:

1. “Baby’s milk” – Infant formula is an artificial replacement for breastmilk that has been formulated to meet the nutritional needs of infants up to six (6) months old and satisfy their physiological characteristics. This substitute must be in accordance with applicable Codex Alimentarius standards, meaning it should not only fit infant’s nutritional requirements but also replicate other aspects found naturally in human milk.
2. “SPD” – refers to Solo Parents Division
3. “SPO” – refers to the Solo Parents Office
4. “Solo Parent Identification Card” and Booklet – The Solo Parent Identification Card (SPIC) serves as a single parent’s primary means of identification, demonstrating their eligibility to receive benefits in accordance with the Act. The SPIC and booklet are issued by the SPO of provinces or cities, or from an SPD at any municipality – these documents must be renewed annually for them to remain valid.
5. Sales discount –the actual discount, or that discount, which in no case shall be lower than ten percent (10%) of the gross selling price of the goods identified in the Act sold to Solo Parents by certain establishments enumerated under the Act and in these Regulations.

Grant of Discounts and VAT Exemption to Solo Parents

The following guidelines shall apply on the granting of the ten percent (10%) discount and VAT exemption:

Solo parents that meet all of the following conditions shall qualify for the 10% discount and VAT exemption:

1. Solo Parent has a child/children (as defined in RA No. 11861) with the age of six (6) years or

under; AND

2. Solo Parent is earning less than P250,000.00 annually.

The 10% discount and VAT exemption shall apply to a qualified Solo Parent’s purchase of the following goods identified in the Act from drugstores, pharmacies, grocery stores , and similar establishments, and subject to the guidelines that shall be issued by the Department of Health (DOH), in coordination with the Food and Drug Administration (FDA), Philhealth, and the Department of Interior and Local Government (DILG):

1. Baby’s milk;
2. Food supplements and Micronutrient supplements;
3. Sanitary diapers;
4. Medicines;
5. Vaccines; and
6. Other medical supplements.

Presentation of the Solo Parent Identification Card (SPIC) and Solo Parent Booklet

To avail of the 10% discount and VAT exemption on qualified purchases, the Solo Parent shall

present his/her SPIC and Solo Parent Booklet.

Contents of the Solo Parent Identification Card (SPIC)

• The SPIC should show that the Solo Parent is entitled to the 10% discount and VAT exemption by indicating that the Solo Parent is earning less than P250,000 annually.
• The back side of the SPIC contains vital information such as the names, birth dates and relationships to solo parents for those qualified children or dependents below six (6) years old.

Determination of the Amount of Discount

The grant of the discount is only for the purchase of goods identified in the Act for THE EXCLUSIVE USE AND ENJOYMENT OR AVAILMENT OF THE SOLO PARENT’S CHILD OR CHILDREN WITH THE AGE OF SIX (6) YEARS OR UNDER.

Rules to be observed in granting the Solo Parent Discount:

Prescribed Medicine, Vaccine, and Other Medical Supplements

• The 10% discount and VAT exemption shall apply to the purchase of generic or branded medicines, vaccines, and medical supplements, which are medically prescribed by an attending physician for the prevention and treatment of diseases, illness, or injury.
• The prescription should be in the name of the Solo Parent’s child/children with the age of six(6) years or under; and subject to the guidelines that shall be issued by the DOH.

Baby’s Milk, Food Supplements and Micronutrient Supplements, and Sanitary Diapers

The 10% discount and VAT exemption shall apply to the purchase of generic or branded baby’s milk, and food supplements. Micronutrient supplements, and sanitary diapers, for the Solo Parent’s child/children the age of six (6) years or under and subject to the guidelines that shall be issued by the DOH.

Tax Treatment of the Discount Granted to Solo Parents

All establishments supplying any of the goods identified in the Actmay claim the discounts granted to Solo Parents as a tax deduction based on the cost of goods sold.

Example: A VAT-registered grocery store sells Similac Infant Milk at an undiscounted selling price of P200 for 340 grams.

The cost of the discount is computed as:

*The selling price to be charged by the seller must be net of VAT because the sale of goods identified in the Act to a qualified Solo Parent is exempt from VAT.

The cost of the discount in the above illustration is P20.00 and shall be allowed as a deduction from gross income for the same taxable year that the discount is granted, provided that, the total amount of the claimed tax deduction net of VAT, if applicable, shall be included in their gross sales for tax purposes and shall be subject to proper documentation in accordance with the provisions of the Tax Code.

This means that for the establishment to be allowed to claim the discount as a deduction, the amount of sales that must be reported for tax purposes is the undiscounted selling price and not the amount of sales net of the discount.

The income statement of the seller must reflect the discount, not as a reduction of sales to arrive at net sales, but as a deduction from its gross income (sales less cost of sales).

Book entry:

Thus, the entry to record the transaction in the books of the seller should be as follows:

The 10% discount granted by the seller of goods identified in the Act shall be treated as an ordinary and necessary expense deductible from the gross income of the seller falling under the category of itemized deductions, and can only be claimed if the seller does not opt for the Optional Standard Deduction during the taxable quarter/year.

The claim of the discount granted under the Act as an additional item of deduction from the gross income of the seller is subject to the following conditions:

1. Only the portion of the gross sales exclusively used, consumed or enjoyed by the Solo Parent’s child/children the age of six (6) years or under shall be eligible for the deductible sales discount.
2. The gross selling price and the sales discount must be separately indicated in the sales invoice issued by the establishment for the sale of goods identified in the Act to the Solo Parent.
3. Only the actual amount of the discount granted or a sales discount not less than the statutory rate of 10%, whichever is higher, based on the gross selling price can be deducted from the gross income, net of value-added tax, if applicable, for income tax purposes, and from gross sales of the business enterprise concerned, for VAT or other percentage tax purposes.
4. The seller must record its sales inclusive of the discount granted.
5. The discount can only be allowed as a deduction from gross income for the same taxable year that the discount is granted.
6. The business establishment giving sales discounts to qualified Solo Parents is required to keep a separate and accurate record of sales, which shall include the Name of the Solo Parent, SPIC number, Name/s of child/children with the age of six (6) year or under, gross sales, sales discount granted, date of transaction, and invoice number for every sale transaction to Solo Parent.
7. Only business establishments selling any of the goods identified in the Act to Solo Parents where an actual discount was granted may claim the deduction.
8. The seller must not claim the Optional Standard Deduction during the taxable year.

Seller’s Obligations

The sale of goods identified in the Act and under Section 3 of these Regulations to a qualified Solo Parent who has a child the age of six (6) years or under and is earning less than P250,000.00 annually shall be exempt from VAT.

1. To guarantee that Solo Parents get the full discount they are entitled to under this Act, sellers must not impose any Value Added Tax (VAT) on goods covered by the law.
2. The sale of goods identified in the Act to a Solo Parent must follow the invoicing requirements prescribed under Revenue Regulations No. 16-2005, as amended.
3. If the seller uses a Point-of-Sale Machine or a Cash Register Machine in lieu of the regular sales invoice, the machine tape must properly segregate the exempt sales from the taxable sales.
4. The input tax attributable to the exempt sale shall not be allowed as an input tax credit and must be closed to the cost or expense account by the seller.

Penalties and Other Sanctions

Any Person, corporation, entity or agency that refuses or fails to provide the benefits granted to the solo parent in violation of this Act shall suffer the following penalties:

1. For the first violation – a fine of not less than Ten thousand pesos (P10,000.00) but not more than Fifty thousand pesos (P50,000.00) or imprisonment of not less than six (6) months but not more than one (1) year, or both, at the discretion of the court.
2. For any subsequent violation – a fine of not less than One hundred thousand pesos (P100,000.00) but not more Two hundred thousand pesos (P200,000.00) or imprisonment of not less than one (1) year but not more than two (2) years, or both at the discretion of the court.
3. If the offender is a corporation, partnership, organization, or any similar entity, the officials and employees who directly participated in the violation/s shall be held liable. The proper authorities may, after due notice and hearing, also cause the cancellation or revocation of the business permit, permit to operate, franchise and other similar privileges granted to any business that fails to abide by the provisions of this act.
4. If the offender is a foreigner, the foreighner shall be deported immediately after service of sentence without further deportation proceedings.
5. Any person who misrepresents status or falsifies any document to avail of the benefits, or cause another person to avail or be denied of the benefits provided under this Act, or any person who abuses the privileges and benefits granted herein shall be punished with a fine of not more than Fifty thousand pesos (P50,000.00) and imprisonment of not less than six (6) months but not more than one (1) year, or both, at the discretion of the court.
6. When the offender or the person responsible for the offenses punishable under paragraphs (A) and (b)of this section is a public officer or employee as defined in Executive Order NO. 292, or the“Administrative Code of 1987”, and the offense was committed in the exercise of official duties, such officer or employee shall suffer the penalty of removal from office and perpetual disqualification from holding public office, in addition to the penalty provided in the preceding paragraph.

The penalties under this Act shall be without prejudice to the imposition of higher penalties existing under other laws.

The Solo Parent Act: A Timely and Necessary Measure

The Solo Parent Act is a timely and necessary measure to ensure the well-being of solo parents in our society. It grants them access to benefits such as discounts on goods, exemption from VAT, and other vital provisions that can help alleviate some of their financial burdens. Furthermore, it provides penalties for any person or business that fails to comply with its requirements – ensuring that all those entitled are given what they deserve according to the law.

We must continue supporting this act by adhering strictly to its laws and regulations so that no one will be denied its benefits.

And to all solo parents out there, Mabuhay kayo!